Navigating the European Landscape

For more than a decade John Keppler, Enviva co-founder, chairman and CEO, has managed the company’s strategic direction. He’s led the company’s growth from startup to becoming the world’s largest producer of industrial wood pellets.

Enviva has operations in Mississippi, Alabama, North Carolina, Virginia and Florida. Its facilities include nearly 3 million metric tons of production capacity and a 600,000-ton plant under construction. Its processing facilities export to customers in the European Union through wood pellet port facilities in Chesapeake, Virginia, and Wilmington, North Carolina, as well as deep-water marine terminals in Panama City, Florida, and Mobile, Alabama.

In January, Enviva announced the formation of a joint venture with affiliates of The John Hancock Life Insurance Co. called the Enviva JV Development Co. It will to acquire, develop and construct wood pellet production plants and deep-water marine terminals in the Southeastern United States. The joint venture announced its intent to acquire a wood pellet production plant in Greenwood, South Carolina. In an interview with Pellet Mill Magazine, Keppler answered questions on the challenges of breaking into the European wood pellet market and future opportunities for Enviva, not only in Europe, but also in Asia.

What percentage of Enviva’s wood pellet production is exported to European markets? How were you able to gain such a foothold there? Was there a learning curve in successfully entering the European market? Today, our customers are mostly European electricity and heat/power producers seeking to decrease their dependence on traditional fossil fuels, such as coal, and reduce their emissions of carbon dioxide and other pollutants. European nations have adopted aggressive, mandatory renewable energy targets. Several countries, including the U.K., have put additional regulations in place that are designed to phase out many coal plants altogether. Since existing coal-fired infrastructure can be converted to use wood biomass instead, Enviva provides a reliable, cost-effective and environmentally beneficial means of meeting these objectives. I will say that although the preponderance of our production is delivered into Europe, the Asian market is growing very rapidly, and we have shipments scheduled for customers in Japan already this year.

We entered the industrial wood pellet business in 2007, and have formed lasting relationships with a reliable customer base. At the start, these relationships were complementary to sales to heating customers. In 2009, however, the European Renewable Energy Directive provided a more substantial opportunity for utility-scale conversions, and we were asked by our customers to create a larger-scale operation that could provide a ratable supply at a predictable cost position. Shortly thereafter, we acquired our first pellet production facility in Amory, Mississippi, (2010) and built our first pellet production facility in Ahoskie, North Carolina, (2011). Our total production capacity is now almost 3 million metric tons per year (MTPY), with a 600,000 MTPY plant under construction and an announced, but not yet closed, acquisition of an additional plant that will add another 600,000 MTPY to our portfolio.

Yes, there was a learning curve in successfully entering the European market. It was not merely a matter of successfully manufacturing wood pellets—we had to master the entire supply chain. I distinctively recall two key decisions: the first was vertically integrating our own deep-water marine terminal at the Port of Chesapeake, which allowed us to gain control of the supply chain.

The second was when we innovated from purely a third-party certification focused approach to sustainability and sustainable forestry practices to an integrated approach of certification, conservation and transparency. In doing so, we developed and launched a proprietary data system, Track & Trace. T&T is a first-of-its-kind system that documents our forestry and supply chain activities on a tract-by-tract basis and allows us to track every ton of wood we buy back to its origin in the forest or sawmill. We publish the T&T data on our website to ensure that it is available publicly and accessible by all of our stakeholders.

These are a few of the early, key elements that ensured that were able to quickly and effectively serve the market and build a differentiated, leadership position in the industry.

When did Enviva send its first shipment of wood pellets to Europe? Can you describe that experience?Our first shipment (a 10,000-ton ship) took place in November 2010. This was an exciting and significant achievement, one nearly matched by the loading of our first ship from our own deep-water marine terminal at the Port of Chesapeake, the following December (2011).

The facility, originally an Alcoa-built alumina import terminal, was purchased in February 2011. Our goal was to load a ship the same year—which we did. The ship, the Daishin Maru, carried 30,000 metric tons of wood pellets to Europe and demonstrated the remarkable capabilities of Enviva: within 10 short months, we constructed 45,000 tons of state-of-the-art storage capacity and converted an import terminal to an export facility, loaded a full shipment with high-quality wood pellets from a production facility completed and commissioned contemporaneously with the port and sailed the vessel to a customer to arrive within the designated arrival window.

How do you see the European wood pellet market evolving in the next five or 10 years? Demand is expected to plateau—are there other markets that Enviva is eyeing? How do the recent acquisition of the Greenwood plant and Enviva’s plans to build more plants and deep-water facilities align with future plans?We see significant industrial pellet growth potential in Europe, both in the short and long term. The Netherlands market is ramping up, both for cofiring and industrial heat, and we’re seeing that Denmark, the U.K. and Belgium continue to pursue new specific biomass electricity and CHP projects. Germany, Poland, and Ireland also represent utility-scale opportunities and across Europe, we also expect growth in combined-heat-and-power applications and in residential thermal markets.

In the 2020s, we see further growth driven by the EU’s Renewable Energy Directives II. RED II’s objectives are focused on efficient and dispatchable assets that provide vital system services complementing wind and solar energy at a national, regional or city level. We are confident that U.S wood pellet exports will continue to play a key role in meeting Europe’s energy and climate objectives—while ensuring grid reliability—well into the future (as was reaffirmed by the positive Jan. 17 vote by the European Parliament on the RED II terms regarding biomass).

We also expect to see strong growth in Japan, where demand for long-term supply of imported wood pellets continues to grow as several utilities and trading houses have announced new cofired and dedicated biomass projects. Japan is targeting 6 to 7.5 gigawatts (GW) of biomass-fired capacity, which represents demand for 15 to 20 MTPY of biomass, as part of its expected power source mix for 2030. Demand for the 2017 feed-in tariff program for projects fueled by imported biomass significantly exceeded expectations, as applications were submitted for more than 15 GW of biomass-fired capacity.

Regarding our recent announcement, the new joint venture aligns perfectly with our strategy to develop and construct new production plants and marine terminals to grow our production capacity, in order to serve the growing Asian and European markets.

Are there any policy issues that Enviva is particularly interested in—for example, uniform sustainability definitions across EU countries? We pride ourselves on producing world class pellets, which means that we seek to deliver the highest quality for our customers, while ensuring the forests we source from are growing and healthy. Enviva foresters and staff across the enterprise dedicate significant time and effort to maintaining our various certifications, which demonstrate the sustainability of our sourcing and pellet production.

Certification provides our customers with independent confirmation that Enviva is doing the right thing and is being held accountable.

Presently, Enviva maintains three types of certifications:

Chain of custody certification, which validates that Enviva adheres to the highest industry standards of responsible fiber procurement, which includes provisions for preserving biodiversity, contractual requirements for the use of forestry best management practices, legal and regulatory compliance, and management oversight and participation in sustainability processes.

Forest management certification validates that a landowner is managing his or her land according to commonly accepted management principles. As Enviva expands into additional countries and markets, we must increase our customers’ access to certified wood.

The Sustainable Biomass Partnership certification is more product-specific, establishing sustainability standards for wood pellet and wood chip production for industrial, large-scale energy production.

What do you think it is that has made Enviva so successful in the wood pellet business? We have seen the rise and fall of a lot of companies over the past decade. Are there strategies you’ve employed that set your company apart from others? We don’t define ourselves as a “wood pellet business.” We view ourselves as a critical supply chain partner to major power generators seeking to improve the environmental profile of energy generation. That means that nothing we do can interrupt their delivery of energy to their customers, nor our delivery of renewable resources to them for fuel. For starters, that means a relentless focus on safety, quality and reliability, and a culture of continuous improvement for each of those disciplines.

But it’s our values that drive our business behavior. We care about keeping people safe, on hiring and developing the best people, on integrity, determination, accountability and on promoting healthy forests in the areas in which we operate. These values have served us very well. They have allowed us to build trusting relationships with all of our stakeholders, from our employees and our suppliers, to our local communities and all the folks who support our supply chain, to customers, and regulators overseas.

The industry is maturing, and we’re helping to set the standard for safety, sustainability, quality, efficiency and reliability.

Has Enviva’s Track and Trace program and its sustainability policies helped your company market its products in Europe? How? Absolutely. Our customers depend upon us to deliver a consistent and sustainable product, as well as to contribute to the health of forest lands. This starts with thoroughly understanding our supply chain and, to do so, we launched the Track & Trace program.

Track & Trace is a proprietary and innovative system that quite literally tracks and traces every truckload of wood procured from the forest or sawmill back to its source. It provides a detailed, tract-level understanding of the characteristics of the wood. We know the precise condition of the forest, the location of the harvest site, who owns the land, the type of forest, how it was harvested, the number of years since the last harvest, the number of acres harvested and the percentage of the total harvested volume for each tract. This allows us to make informed sourcing and procurement decisions and to share the information publicly.

Transparency is critical to building trust—we are consistently reviewing and improving our practices and we are happy to engage with stakeholders to continue to improve and share information about our sourcing systems. Our Track & Trace data is a pillar of our commitment to transparency and an important element of Enviva’s Responsible Wood Supply Program.

As a major player in the wood pellet industry, can you discuss what the main challenges have been?We’re in what I would call a “juvenile” industry and we have had to work through many engineering challenges without the benefit of a century of best practices to fall back on. It’s taken a lot of perseverance and problem-solving. I’m very proud of our culture of continuous improvement that has allowed us to continue to grow the production capacity at each plant, and make substantial improvements in quality while maintaining a relentless prioritization of safety.

Another challenge has been building a reliable and scalable supply chain that connects landowners in the Southeast U.S. to customers around the world. This involved all the normal logistical challenges of moving goods, but also doing so with the lowest possible energy footprint, and developing a comprehensive program of education, certification, and transparency to ensure that all the wood fiber we purchase comes from sustainably managed forests.

The last thing I’ll mention is more of an opportunity than a challenge. As the company and industry grow, we have a stronger voice to tell what has sometimes been seen as a complex story. We have a chance to educate the public about the science our industry is built on. Biomass produced sustainably in Southeast U.S. is playing an increasingly important role in improving the environmental profile of energy generation and in providing economic benefits to communities. It’s a powerful story about the carbon benefits of replacing coal with biomass, and about the positive relationship between the rates of forest harvest and forest regrowth.